Wednesday, April 04, 2007

Three by Three

I've been doing a lot of experimenting with volume and price using an analytical approach where I am trying to see what three days of a specified volume configuration when linked with three days of a specified price configuration would yield.

For example what does three days of decreasing volume coupled with three days of increasing lows result in? That looks like this -

And when back tested it results in a 61% win rate and a 75% ROI.

That's just a little taste of the finished product. When it is done I'll publish the results of all the various tests and then we'll try some practical applications with filters that we know have solid results already.

This is going to take awhile so be patient. I'm posting this article to see if I can stimulate some others to do similar type experimenting. Remember - price and volume are what's happening now - moving averages are what happened yesterday.


Anonymous said...

The way we think alike is uncanny. A couple of months ago I noticed (using 15 min. charts) a 4-bar volume pattern involving three consecutively declining bars (some so symmetrical in their decline that I likened them to a "ski slope"). What caught my eye was how price reacted to a spike in volume on the fourth bar: If it was positive, price went up. If it was negative, price went down. In essence, the downhill skier hits a wall. So last night I put together a PaintBar in QT to "catch" the above condition. One of the caveats was that price on the fourth bar/candle must close higher than the initiating bar (3 bars back). The other required volume to spike on the fourth bar creating the "wall." Well, this morning I picked-up BLUD on a Gap scan from and holy smokes---what a ride! Today's trading (15 min. chart) included quadruple---all back-to-back----ski slopes. I entered on the 11:15 candle following a Return to 4 and a Tweezer Bottom. Because price was already above R4, I used Fib. Exts. for targets, the first being 138.2%. When price hit that mark, volume spiked and produced another "wall." My next target became the 161.8% level where, again, volume spiked and produced another "wall." I exited there at $33.83 (no need to "hope for more.") I'm not so certain this wasn't a fluke. However, I also received alerts on: JAH(10:45), EYE(11:15), PMTC(11:45) and DNDN(11:00). Wish I would have traded DNDN, but I can't complain.

I started paying attention to this pattern again after visiting your site for the first time and seeing that somebody else also was identifying price patterns (BOB) using volume bars. I just thought I was nuts.

Happy Easter to you and yours,


Marlyn Trades said...

Absolutely beautiful! - I'm going to code it up and see how it back tests. I'm also going ot put it into QT -
Now that's what I'm talking about Imagination running wild -

Thank you

And a Happy Easter to you and yours as well.